<PAGE>   1






                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED AUGUST 1, 1998
                         COMMISSION FILE NUMBER 0-19714

                                PERFUMANIA, INC.


                     STATE OF FLORIDA I.R.S. NO. 65-0026340

                              11701 N.W. 101ST ROAD
                              MIAMI, FLORIDA 33178

                        TELEPHONE NUMBER: (305) 889-1600


INDICATE BY CHECK MARK WHETHER THE REGISTRANT, (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE (12) MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST NINETY (90) DAYS.



                                 YES [X] NO [ ]



                           COMMON STOCK $.01 PAR VALUE
                OUTSTANDING SHARES AT AUGUST 1, 1998 - 7,930,291





<PAGE>   2




                                TABLE OF CONTENTS

                                PERFUMANIA, INC.

                                     PART I
                              FINANCIAL INFORMATION



ITEM 1  FINANCIAL STATEMENTS

            Consolidated Balance Sheets .............................      3

            Consolidated Statements of Operations ...................      4

            Consolidated Statements of Cash Flows ...................      5

            Notes to Condensed Consolidated Financial Statements ....      6


ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        CONSOLIDATED FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS .......................................      9




<PAGE>   3


PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


                                PERFUMANIA, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   August 1, 1998     January 31, 1998
                                                                   --------------     ----------------
<S>                                                                <C>                 <C>          
ASSETS

Current assets:
  Cash and cash equivalents                                        $   1,684,815       $   1,554,117
  Trade receivables, less allowance for doubtful
   accounts of $764,954 and $704,954                                   6,007,315           5,186,473
  Advances to suppliers                                                8,738,460           7,611,036
  Inventories, net of reserve of $601,275 and $2,750,000              70,045,648          73,137,842
  Prepaid expenses and other current assets                            1,642,838           2,086,118
  Tax refund receivable                                                    7,277             814,766
  Net deferred tax asset                                               1,219,856           1,219,856
  Due from related parties                                               922,855             772,855
                                                                   -------------       -------------
     Total current assets                                             90,269,064          92,383,063
Property and equipment, net                                           21,879,902          18,307,240
Leased equipment under capital leases, net                             1,721,840           2,266,674
Other assets                                                           1,595,081           1,764,906
                                                                   -------------       -------------
                                                                   $ 115,465,887       $ 114,721,883
                                                                   =============       =============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Bank line of credit and current portion of
     notes payable                                                 $  37,066,722       $  34,139,766
  Accounts payable - non affiliates                                   14,645,466          13,308,914
  Accounts payable - affiliates                                       20,251,830          16,958,163
  Accrued expenses and other liabilities                               6,185,910           6,848,923
  Income taxes payable                                                   367,542             505,098
  Current portion of obligations under capital leases                    715,257           1,030,340
  Due to related parties                                                 345,437             304,483
                                                                   -------------       -------------
     Total current liabilities                                        79,578,164          73,095,687
                                                                   -------------       -------------

Long term portion of notes payable                                     3,843,270           4,709,434
Long-term portion of obligations under capital leases                    669,943             933,615
                                                                   -------------       -------------
     Total liabilities                                                84,091,377          78,738,736
                                                                   -------------       -------------
Commitments and contingencies                                                 --                  --
                                                                   -------------       -------------

Stockholders' equity:
  Preferred stock, $.01 par value, 1,000,000 shares
   authorized, none issued                                                    --                  --
  Common stock, $.01 par value, 25,000,000 shares
   authorized, 7,930,291 and 7,845,291 shares issued
   and outstanding                                                        79,303              78,453
  Capital in excess of par                                            52,385,511          52,386,361
  Treasury stock                                                      (5,085,435)         (4,521,068)
  Accumulated deficit                                                (16,004,869)        (11,960,599)
                                                                   -------------       -------------
Total stockholders' equity                                            31,374,510          35,983,147
                                                                   -------------       -------------
                                                                   $ 115,465,887       $ 114,721,883
                                                                   =============       =============


</TABLE>

See accompanying notes to consolidated financial statements


                                       3
<PAGE>   4


                                PERFUMANIA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                          THIRTEEN           THIRTEEN          TWENTY-SIX          TWENTY-SIX
                                         WEEKS ENDED        WEEKS ENDED        WEEKS ENDED         WEEKS ENDED
                                        AUGUST 1, 1998     AUGUST 2, 1997     AUGUST 1, 1998     AUGUST 2, 1997
                                        --------------     --------------     --------------     --------------
<S>                                      <C>                <C>                <C>                <C>         
Net sales:
   Unaffiliated customers                $ 39,684,364       $ 36,095,848       $ 78,152,339       $ 65,042,533
   Affiliates                                      --          1,188,682                 --          2,230,721
                                         ------------       ------------       ------------       ------------
                                           39,684,364         37,284,530         78,152,339         67,273,254
                                         ------------       ------------       ------------       ------------
Cost of goods sold:
   Unaffiliated customers                  23,173,689         20,648,699         46,836,147         36,689,383
   Affiliates                                      --          1,007,553                 --          2,049,592
                                         ------------       ------------       ------------       ------------
                                           23,173,689         21,656,252         46,836,147         38,738,975
                                         ------------       ------------       ------------       ------------

Gross profit                               16,510,675         15,628,278         31,316,192         28,534,279
                                         ------------       ------------       ------------       ------------

Operating expenses:
  Selling, general and administrative      15,522,774         14,277,483         30,860,322         28,486,307
  Depreciation and amortization             1,094,215          1,156,772          2,176,473          2,286,221
                                         ------------       ------------       ------------       ------------
      Total operating expenses             16,616,989         15,434,255         33,036,795         30,772,528
                                         ------------       ------------       ------------       ------------


      Income (loss) from operations
       Before other expense                  (106,314)           194,023         (1,720,603)        (2,238,249)
Other expense                              (1,166,344)          (955,601)        (2,323,667)        (1,853,589)
                                         ------------       ------------       ------------       ------------
Loss before income taxes                   (1,272,658)          (761,578)        (4,044,270)        (4,091,838)
Benefit  for income taxes                          --           (304,631)                --         (1,636,735)
                                         ------------       ------------       ------------       ------------
Net loss before cumulative
  effect of change in accounting               
  principle                                (1,272,658)          (456,947)        (4,044,270)        (2,455,103)
                                         ------------       ------------       ------------       ------------
Cumulative effect of change
  in accounting principle,
  net of income
  tax benefit of $380,958                          --                 --                 --           (631,418)
                                         ============       ============       ============       ============
Net loss                                 $ (1,272,658)      $   (456,947)      $ (4,044,270)      $ (3,086,521)
                                         ============       ============       ============       ============

Basic loss per common share:
  Net loss before cumulative
  effect of change in accounting         
  principle                              $      (0.20)      $      (0.06)      $      (0.62)      $      (0.35)    
Cumulative effect of change
  in accounting principle, net                      
  of tax benefit                                   --                 --                 --       $      (0.09)
                                         ------------       ------------       ------------       ------------
Net loss                                 $      (0.20)      $      (0.06)      $      (0.62)      $      (0.44)
                                         ------------       ------------       ------------       ------------
Diluted loss per common share:
  Net loss before cumulative
  effect of change in accounting                
  principle                              $      (0.20)      $      (0.06)      $      (0.62)      $      (0.35)    
Cumulative effect of change in
  accounting principle, net                        
  of tax benefit                                   --                 --                 --       $      (0.09) 
                                         ------------       ------------       ------------       ------------
Net loss                                 $      (0.20)      $      (0.06)      $      (0.62)      $      (0.44)
                                         ------------       ------------       ------------       ------------

Weighted average number of
  shares outstanding:
  Basic                                     6,519,440          7,092,772          6,519,440          7,106,672
  Diluted                                   6,539,897          7,265,510          6,547,018          7,279,186


</TABLE>

See accompanying notes to consolidated financial statements.

                                       4

<PAGE>   5


                                 PERFUMANIA, INC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                             TWENTY-SIX        TWENTY-SIX
                                                                             WEEKS ENDED       WEEKS ENDED
                                                                            AUGUST 1, 1998    AUGUST 2, 1997
                                                                            --------------    --------------
<S>                                                                           <C>               <C>         
Cash flows from operating activities:
 Net loss                                                                     $(4,044,270)      $(3,086,521)
 Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
    Benefit for deferred taxes                                                         --        (2,017,610)
    Provision for doubtful accounts                                                60,000           510,000
    Depreciation and amortization                                               2,176,473         2,286,221
    Loss on disposition                                                                --           138,350
    Cumulative effect of change in
      accounting principle                                                             --           631,418
    Change in assets and liabilities,
    (Increase) decrease in:
         Trade receivables                                                       (880,842)        1,762,490
         Advance to suppliers                                                  (1,127,424)       (3,958,056)
         Inventories                                                            3,092,194         2,836,474
         Other current assets                                                     443,280           497,597
         Due from related parties                                                (150,000)               --
         Tax refund receivable                                                    807,489                --
         Other assets                                                             169,825            70,593
    Increase (decrease) in:
         Accounts payable                                                       4,630,219        (1,114,859)
         Other current liabilities                                               (663,013)          (14,059)
         Income taxes payable                                                    (137,556)       (1,012,694)
                                                                              -----------       -----------
    Total adjustments                                                           8,420,645           615,865
                                                                              -----------       -----------
         Net cash provided by (used in) operating                             
           activities                                                           4,376,375        (2,470,656)
                                                                              -----------       -----------
  Cash flows from investing activities:
    Additions to property and equipment                                        (5,204,301)       (2,231,648)
                                                                              -----------       -----------
    Net cash used in investing activities                                      (5,204,301)       (2,231,648)
                                                                              -----------       -----------
  Cash flows from financing activities:
      Borrowings and repayments under loan payable                              2,060,792         5,774,104
      Repayments and loans to related parties                                      40,954           (15,517)
      Principal payments under capital lease obligations                         (578,755)         (477,107)
      Purchase of treasury stock                                                 (564,367)         (190,239)
                                                                              -----------       -----------
         Net cash provided by financing activities                                958,624         5,091,241
                                                                              -----------       -----------
    Increase in cash and cash equivalents                                         130,698           388,937
    Cash and cash equivalents at beginning of period                            1,554,117         1,641,527
                                                                              -----------       -----------
    Cash and cash equivalents at end of period                                $ 1,684,815       $ 2,030,464
                                                                              ===========       ===========

   Supplemental disclosure of cash flow information: 
      Cash paid for:
          Interest                                                            $ 2,512,626       $ 2,323,228
          Income Taxes                                                            137,556         1,012,694


</TABLE>

See accompanying notes to consolidated financial statements.



                                       5

<PAGE>   6


                                PERFUMANIA, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1).  SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of
Perfumania and subsidiaries (the Company). All material intercompany balances
and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The financial information presented
herein, which is not necessarily indicative of results to be expected for the
current fiscal year, reflects all adjustments which, in the opinion of the
Company, are necessary for a fair statement of the results for the periods
indicated. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.

(2).  STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                           
                               COMMON STOCK              CAPITAL IN          TREASURY  STOCK         
                       ------------------------------      EXCESS      ---------------------------     ACCUMULATED
                           SHARES           AMOUNT         OF PAR         SHARES         AMOUNT          DEFICIT          TOTAL
                       ------------      ------------   ------------   ------------   ------------    ------------    ------------
<S>                    <C>               <C>            <C>            <C>            <C>             <C>             <C>        
Balance at
January 31, 1998          7,845,291      $     78,453   $ 52,386,361      1,218,360   $ (4,521,068)   $(11,960,599)   $ 35,983,147

Issuance of
Common stock                 85,000               850           (850)            --             --              --              --

Purchases of
Treasury stock                   --                --             --        192,491       (564,367)             --        (564,367)

Net loss for the
Twenty-six weeks
Ended August 1, 1998             --                --             --             --             --      (4,044,270)     (4,044,270)
                       ------------      ------------   ------------   ------------   ------------    ------------    ------------


Balance at
August 1, 1998            7,930,291      $     79,303   $ 52,385,511      1,410,851   $ (5,085,435)   $(16,004,869)   $ 31,374,510
                       ============      ============   ============   ============   ============    ============    ============

</TABLE>



(3).  BASIC AND DILUTED LOSS PER COMMON SHARE

Basic loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
loss per share includes the dilutive effect of those stock options where the
option exercise prices exceed the average market price of the common shares for
the respective quarters.





                                       6



<PAGE>   7


(4).  SEGMENT INFORMATION

The Company operates in two industry segments, specialty retail sale and
wholesale distribution of fragrances and related products. Financial information
for these segments is summarized in the following table.

<TABLE>
<CAPTION>
                                     THIRTEEN WEEKS   THIRTEEN WEEKS    TWENTY-SIX       TWENTY-SIX
                                         ENDED            ENDED         WEEKS ENDED      WEEKS ENDED
                                     AUGUST 1, 1998   AUGUST 2, 1997   AUGUST 1, 1998   AUGUST 2, 1997
                                     --------------   --------------   --------------   --------------
<S>                                   <C>              <C>              <C>              <C>        
Sales
    Wholesale                         $10,234,862      $ 8,332,664      $23,702,792      $14,873,987
    Retail                             29,449,502       28,951,866       54,449,547       52,399,267
                                      -----------      -----------      -----------      -----------
         Total net sales              $39,684,364      $37,284,530      $78,152,339      $67,273,254
                                      -----------      -----------      -----------      -----------

Cost of goods sold
    Wholesale                         $ 8,322,179      $ 6,168,258      $18,602,370      $11,253,231
    Retail                             14,851,510       15,487,994       28,233,777       27,485,744
                                      -----------      -----------      -----------      -----------
         Total cost of goods sold     $23,173,689      $21,656,252      $46,836,147      $38,738,975
                                      -----------      -----------      -----------      -----------

Gross profit
     Wholesale                        $ 1,912,683      $ 2,164,406      $ 5,100,422      $ 3,620,756
     Retail                            14,597,992       13,463,872       26,215,770       24,913,523
                                      -----------      -----------      -----------      -----------
          Total gross profit          $16,510,675      $15,628,278      $31,316,192      $28,534,279
                                      -----------      -----------      -----------      -----------


Number of stores                              286              271


</TABLE>


<TABLE>
<CAPTION>
                                                          AUGUST 1,       JANUARY 31,
                                                            1998             1998
                                                        -----------      -----------
<S>                                                     <C>              <C>        
INVENTORY
   Wholesale                                            $13,348,871      $20,368,792
    Retail                                               56,696,777       52,769,050
                                                        -----------      -----------
                                                        $70,045,648      $73,137,842
                                                        -----------      -----------

</TABLE>


An unaffiliated customer of the wholesale segment accounted for approximately
12% and 7% of the consolidated net sales for the twenty-six weeks ended August
1, 1998 and August 2, 1997, respectively, and 15% and 53% of the consolidated
net trade accounts receivable balance at August 1, 1998 and August 2, 1997,
respectively.


(5) RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up
Activities", which requires the Company to expense preopening expenses as
incurred. Previously, the Company had capitalized and amortized these expenses
over 18 months. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, does not require restatement of prior periods
and is applied as of the beginning of the fiscal year in which the SOP is first
adopted. The Company early adopted SOP 98-5 in fiscal 1997 and reported the
initial application as a cumulative effect of a change in accounting principle
in the Consolidated Statement of Operations for the year ended January 31, 1998.
Accordingly, the Company's net loss and net loss per common share for the
thirteen and twenty-six weeks ended August 2, 1997 in the accompanying
Consolidated Statements of Operations has been restated to reflect this change.
The effect of the change in accounting 


                                       7
<PAGE>   8

principle was to reduce the net loss before cumulative effect of change in
accounting principle reported for the first twenty-six weeks of 1997 by
approximately $136,000.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity arising from non-owner
sources. It includes net income as well as foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. This statement is effective for
fiscal years beginning after December 15, 1997. Comprehensive loss for the
thirteen and twenty-six weeks ended August 1, 1998 was $1,272,658 and
$4,044,270, respectively, as compared to comprehensive loss of $456,947 and
$3,086,521 for the same periods in the prior year.

(6).  OTHER

During the fiscal years 1997 and 1996, the Company made sales to L. Luria & Son,
Inc. ("Luria's") in the amounts of $1,999,823 and $2,473,623, respectively. The
Company wrote off in 1997 receivables from Luria's in the approximate amount of
$1,200,000. The Company has been characterized as an insider in the liquidating
plan or reorganization filed on April 6, 1998 by Luria's in the United States
Bankruptcy Court, Southern District of Florida. In August 1998, the committee of
unsecured creditors in Luria's bankruptcy proceedings filed a complaint with the
United States Bankruptcy Court, Southern District of Florida, to recover
substantial funds from the Company. The complaint alleges that Luria's made
preference payments, as defined by the Bankruptcy Court, to the Company and
seeks recovery of said preference payments, as well as disallowing any and all
claims of the Company against Luria's until full payment of the preference
payments have been made. Management cannot presently predict the outcome of
these matters, although management believes, upon the advice of legal counsel,
that the Company would have meritorious defenses and that the ultimate
resolution of these matters should not have a materially adverse effect on the
Company's financial position or result of operations.





                                       8
<PAGE>   9



PART I.   FINANCIAL INFORMATION
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL 
          CONDITION AND RESULTS OF OPERATIONS

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

         Perfumania does not provide forecasts of future financial performance.
Forward-looking statements in this Form 10-Q and other Company reports and press
releases are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and, in connection therewith, the
Company wishes to caution readers that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results and could cause such results to differ materially from those
expressed in forward-looking statements made by or on behalf of the Company.

         SEASONALITY. The Company has historically experienced higher sales in
the third and fourth fiscal quarters than in the first and second fiscal
quarters. Significantly higher fourth fiscal quarter retail sales result from
increased purchases of fragrances as gift items during the Christmas holiday
season. The Company's quarterly results may also vary due to the timing of new
store openings, net sales contributed by new stores and fluctuations in
comparable sales of existing stores. A variety of factors affect the sales
levels of new and existing stores, including the retail sales environment and
the level of competition, the effect of marketing and promotional programs,
acceptance of new product introductions, adverse weather conditions and general
economic conditions.

         LACK OF LONG-TERM AGREEMENTS WITH SUPPLIERS. The Company's success
depends to a large degree on its ability to provide an extensive assortment of
brand name and designer fragrances. The Company has no long-term purchase
contracts or other contractual assurance of continued supply, pricing or access
to new products. While the Company believes it has good relationships with its
vendors, the inability to obtain merchandise from one or more key vendors on a
timely basis, or a material change in the Company's ability to obtain necessary
merchandise could have a material adverse effect on its results of operations.

         DEPENDENCE ON LINE OF CREDIT. As discussed above, the Company
experiences significant seasonal fluctuations in its sales and operating
results, as is common with many specialty retailers. The Company utilizes its
line of credit to fund inventory purchases and to support new retail store
openings. Any future limitation on the Company's borrowing ability and access to
financing could limit the Company's ability to open new stores and to obtain
merchandise on satisfactory terms. The Company's current line of credit contains
financial covenants, including a net income covenant. Should the Company not be
able to meet its covenants, its borrowing ability and thus, its operations will
be seriously affected.

         DEPENDENCE ON KEY PERSONNEL. Simon Falic, the Company's Chairman of the
Board, President and Chief Executive Officer and Jerome Falic, the Company's
Chief Merchandising Officer, are primarily responsible for the Company's
merchandise purchases, and have developed strong, reliable relationships with
suppliers, as well as customers of the Wholesale division in the United States,
Europe, Asia and South America. The loss of service of either of these, or any
of the Company's other current executive officers could have a material adverse
effect on the Company.

         ABILITY TO MANAGE GROWTH. While the Company has grown significantly in
the past several years, there is no assurance that the Company will sustain the
growth in the number of retail stores and revenues that it has achieved
historically. The Company's growth is dependent, in large part, upon the
Company's ability to open and operate new retail stores on a profitable basis,
which in turn is subject to, among other things, the Company's ability to secure
suitable stores sites on satisfactory terms, the Company's ability to hire,
train and retain qualified management and other personnel, the availability of
adequate capital resources and the successful integration of new stores into
existing operations. There can be no assurance that the Company's new stores
will achieve sales and profitability comparable to existing stores, or that the
opening of new locations will not cannibalize sales at existing locations.



                                       9
<PAGE>   10

         LITIGATION. As is often the case in the fragrance and cosmetics
business, some of the merchandise purchased by suppliers such as the Company may
have been manufactured by entities who are not the owners of the trademarks or
copyrights for the merchandise. If the Company were called upon or challenged by
the owner of a particular trademark or copyright to demonstrate that the
specific merchandise was produced and sold with the proper authority and the
Company were unable to do so, the Company could, among other things, be
restricted from reselling the particular merchandise or be subjected to other
liabilities, which could have an adverse effect on the Company's business and
results of operations.

         OTHER. The Company has been characterized as an insider in the
liquidating plan of reorganization filed on April 6, 1998 by L. Luria & Son,
Inc. ("Luria's") in the United States Bankruptcy Court, Southern District of
Florida. In August 1998, the committee of unsecured creditors in Luria's
bankruptcy proceedings filed a complaint with the United States Bankruptcy
Court, Southern District of Florida, to recover substantial funds from the
Company. The complaint alleges that Luria's made preference payments, as defined
by the Bankruptcy Court, to the Company and seeks recovery of said preference
payments, as well as disallowing any and all claims of the Company against
Luria's until full payment of the preference payments have been made. Management
cannot presently predict the outcome of these matters, although management
believes, upon the advice of counsel, that the Company would have meritorious
defenses and that the ultimate resolution of these matters should not have a
materially adverse effect on the Company's financial position or result of
operations.

SEASONALITY

The Company's operations have historically been seasonal, with generally higher
retail sales in the third and fourth fiscal quarters than in the first and
second fiscal quarters. Significantly higher fourth fiscal quarter retail sales
result from increased purchases of fragrances as gift items during the Christmas
holiday season. Wholesale sales also vary by fiscal quarter as a result of the
selection of merchandise available for sale as well as the need for the Company
to stock its retail stores for the Christmas holiday season. Therefore, the
results of any interim period are not necessarily indicative of the results that
might be expected during a full fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements are to fund working capital needs,
new store additions and renovation of existing stores. For the first twenty-six
weeks of fiscal 1998, these capital requirements have generally been satisfied
by short term borrowings and cash flows from operations.

Net cash provided by operating activities during the twenty-six weeks ended
August 1, 1998 was approximately $4.4 million, principally as a result of the
net change in the Company's inventory, trade receivables, and accounts payable,
which offset the net loss for the twenty-six week period. At August 1, 1998,
approximately $0.9 million of the Company's trade receivables were considered
past due compared to $1.1 million at January 31, 1998. Of the $6.0 million in
trade receivables due from unaffiliated customers, $0.9 million was due from one
customer which also accounted for 7% of the Company's wholesale sales during the
thirteen weeks ended August 1, 1998. The Company's sales to this customer are
made on an open account terms and since late 1991 the Company has extended
credit terms to this customer of up to one year. The Company has not experienced
any write-offs of accounts receivable from this customer due to collectibility.

Net cash used in investing activities during the current period was $5.2
million. This represents purchases of furniture, fixtures and equipment for new
store openings and the renovation of existing stores during the first three
quarters. The increase in 1998 capital expenditures is due to a higher level of
both new store and remodel construction activity compared to 1997.

Net cash provided by financing activities during the current period was
approximately $1.0 million, which was primarily the result of an increase in the
Company's use of its line of credit. In May 1998, the Company's $35 million line
of credit was extended from April 1999 to April 2001, and certain covenants were
revised. Management believes that cash provided by operations together with
borrowing under the Company's line of credit will be sufficient to fund
estimated capital expenditures associated with the Company's scheduled opening
of new stores through fiscal 1998 and other working capital requirements.


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<PAGE>   11

During the thirteen weeks ended August 1, 1998, the Company opened 9 stores and
closed 7 stores. At August 1, 1998, the Company operated 286 stores.

RESULTS OF OPERATIONS

COMPARISON OF THE THIRTEEN WEEKS ENDED AUGUST 1, 1998 WITH THE THIRTEEN WEEKS
ENDED AUGUST 2, 1997.

Net sales increased from $37.3 million in the thirteen weeks ended August 2,
1997, to $39.7 million in the thirteen weeks ended August 1, 1998. Wholesale
sales increased by 22.8% (from $8.3 million to $10.2 million) and retail sales
increased by 1.7% (from $29.0 million to $29.5 million). The increase in
wholesale sales was due to continued efforts to reduce inventory levels. The
increase in retail sales was principally due to the increase in the number of
stores operated during the thirteen weeks ended August 1, 1998 compared to the
thirteen weeks ended August 2, 1997. Comparable store sales during the current
period decreased 4.4% when compared to last year.

Gross profit increased 5.7% from $15.6 million in the thirteen weeks ended
August 2, 1997 (41.9% of net sales) to $16.5 million in the thirteen weeks ended
August 1, 1998 (41.6% of net sales) primarily due to an increase in gross profit
for the retail division.

Gross profit for the wholesale division decreased from $2.2 million in the
thirteen weeks ended August 2, 1997 to $1.9 million in the thirteen weeks ended
August 1, 1998. As a percentage of net sales, gross profit for the wholesale
division decreased from 26.0% in the thirteen weeks ended August 2, 1997 to
18.7% in the thirteen weeks ended August 1, 1998, primarily as a result of lower
margin sales.

Gross profit for the retail division increased to $14.6 million in the thirteen
weeks ended August 1, 1998 from $13.5 million in the thirteen weeks ended August
2, 1997 as a result of higher retail sales. As a percentage of net sales, gross
profit for the retail division increased from 46.5% in the thirteen weeks ended
August 2, 1997 to 49.6% in the thirteen weeks ended August 1, 1998 primarily as
a result of less promotional sales of merchandise at lower margins, as well as
the introduction of a new private label bath, body and cosmetic line in the
current quarter. Sales of this private label line yields gross margins
significantly higher than the Company's fragrance sales.

Operating expenses, which include selling, general and administrative expenses
as well as depreciation, increased 7.7% from $15.4 million in the thirteen weeks
ended August 2, 1997 to $16.6 million in the thirteen weeks ended August 1,
1998. The increase was primarily due to costs associated with the operation of
an average of 14 additional stores during the current period.

As a result of the foregoing, the Company had a net loss of $1,272,658, or
($0.20) per diluted share, in the thirteen weeks ended August 1, 1998 compared
to a net loss of $456,947, or ($0.06) per diluted share, in the thirteen weeks
ended August 2, 1997. Excluding the tax benefit of $304,631 in 1997, the loss
for the thirteen weeks ended August 2, 1997 was $761,578 or ($0.11) per diluted
share.


COMPARISON OF THE TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 WITH THE TWENTY-SIX
WEEKS ENDED AUGUST 2, 1997

Net sales increased 16.2% from $67.3 million in the twenty-six weeks ended
August 2, 1997 to $78.2 million in the twenty-six weeks ended August 1, 1998.
The increase in net sales was due to a 3.9% increase in retail sales (from $52.4
million to $54.5 million), and a 59.4% increase in wholesale sales (from $14.9
million to $23.7 million).

The increase in wholesale sales was primarily attributable to continued efforts
to reduce inventory levels. The increase in retail sales was principally due to
the increase in the number of stores operated during the twenty-six weeks ended
August 1, 1998 compared to the twenty-six weeks ended August 2, 1997. Comparable
store sales during the twenty-six weeks ended August 2, 1997 decreased 2.7% when
compared to last year.




                                       11
<PAGE>   12

Gross profit increased 9.7% from $28.5 million in the twenty-six weeks ended
August 2, 1997 (42.4% of net sales) to $31.3 million in the twenty-six weeks
ended August 1, 1998 (40.1% of net sales) as a result of increases in both
retail and wholesale sales. The decrease in gross profit as a percentage of
sales is due to the increase in wholesale sales. Wholesale sales yield
significantly lower margins compared to retail sales.

Gross profit for the wholesale division increased 40.8% from $3.6 million in the
twenty-six weeks ended August 2, 1997 to $5.1 million in the twenty-six weeks
ended August 1, 1998, primarily as a result of higher wholesale sales. As a
percentage of net sales, gross profit for the wholesale division decreased from
24.3% in the twenty-six weeks ended August 2, 1997 to 21.5% in the twenty-six
weeks ended August 1, 1998.

Gross profit for the retail division increased 5.2% from $24.9 million in the
twenty-six weeks ended August 2, 1997 to $26.2 million in the twenty-six weeks
ended August 1, 1998. The retail division's gross margin increased from 47.5% in
the twenty-six weeks ended August 2, 1997 to 48.1% in the twenty-six weeks ended
August 1, 1998 as a result of less promotional sales of merchandise at lower
margins.

Operating expenses increased $2.3 million in the twenty-six weeks ended August
1, 1998 compared to the twenty-six weeks ended August 2, 1997. The increase was
primarily due to costs associated with the operation of an average of 15
additional stores.

During the twenty-six weeks ended August 1, 1998 the Company had a net loss of
$4,044,270 or ($0.62) per diluted share, compared to a net loss of $3,086,521 or
($0.44) per diluted share during the twenty-six weeks ended August 2, 1997.
Excluding the cumulative effect of the change in accounting principle of
$631,418 and a tax benefit of $1,636,735 in 1997, the loss for the first
twenty-six weeks of 1997 was $4,091,838 or $($0.56) per diluted share.











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<PAGE>   13


                                PERFUMANIA, INC.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.





                                    PERFUMANIA, INC.
                                    (Registrant)





Date:  September 10, 1998           By:  /s/ Simon Falic
                                         ------------------------------------
                                         Simon Falic
                                         Chairman of the Board, President and
                                         Chief Executive Officer
                                         (Principal Executive Officer)




                                    By:  /s/ Ron A. Friedman
                                         ------------------------------------
                                         Ron A. Friedman
                                         Chief Financial Officer,
                                         Treasurer, and Secretary
                                         (Principal Financial and
                                         Accounting Officer)





                                       13